Bryn Jones assesses Starmer’s static slot machine and Sunak’s slick sweepstake
You know the problem. You insert the coin into the machine. It either falls out or nothing happens. Try again or bang your fists to get the ticket or the goods. Keir Starmer’s much-hyped, recent policy statement seemed a bit like that slot machine. Left, right and centre banged on for months for the Labour leader to announce solid alternatives to the Tories’ erratic and blundering management of the economy, and a plan for a post-Covid society. At last, in Starmer’s speech the penny seemed to drop. But what came out didn’t – to mix another slot machine metaphor – get the fruits in a row. Chancellor Sunak’s budget might seem to offer a more convincing gamble.
Starmer supporters claimed his speech was solid social-democratic stuff with concern for impoverished children and communities and their grossly unequal health prospects. More broadly, the speech acknowledged critics’ – including this correspondent’s – point that the situation resembles the reconstruction needs at the end of World War 2. Starmer evoked the need for equally fundamental changes, not just for ‘building back’ to what went before.
His proposed ‘British Recovery Bond’ is a significant Keynesian fiscal brainwave which could palliate the rising debt mountain and help millions of small savers currently stuck with miniscule or zero interest-bearing accounts. He also managed to rise above predictable and tedious point-scoring against Tory incompetence by arguing that our problems stem from an “ideology that’s failed… that’s proved incapable of providing security for the long-term, that’s indifferent to the moral and economic necessity of tackling inequality”. Hopefully he meant neoliberalism – a mindset which the post-Corbyn leadership has previously hardly acknowledged. That’s all the good news.
In other parts of the speech the coin seemed stuck in the Starmer hallmark of cautious and ‘constructive’ Opposition. Reassurances that Labour would not let business costs rise were backed by promises to: extend the pandemic business rate relief and the VAT cut for hospitality and leisure; ease the ‘burden of debt’ on many businesses; and amplify the furlough scheme. Of course, unless the Covid crisis extends to 2024, such support shouldn’t be needed from a Labour government. In a likely prolonged recession other substantial measures would be needed. The fiscal prudence mantra was repeated: “no time for tax rises on businesses and families” that would “choke off our recovery”. So what, observers wonder, would finance Starmer’s promises of keeping the £20 uplift in Universal Credit (cost £6 billion a year), funding for councils to prevent huge council tax rises, and ending the pay freeze for key workers?
The apparent reversal of Starmer’s leadership election pledges to raise corporation tax caused a predictable and understandable furore across the media and within Labour. Cue front bench stalwarts, like Lisa Nandy, to finesse the ‘no tax rises’ position with the line: no corporation tax rises while so many businesses are poleaxed by lockdowns. Yet this position suggests an ignorance or avoidance of some basic features of corporation tax.
Firstly, it is only paid by limited companies, not partnerships or sole traders. So, it would not affect the many small businesses to whom Labour ought to be pitching its messages. Secondly, corporation tax is, effectively, only levied on the profits after payment of wages and a range of business expenses. It is therefore mainly a tax on share dividends. Thirdly, tax on remaining surpluses isn’t collected until nine months after the end of a business’s accounting year. So a lockdown-hit company with an accounting year ending in, say, December 2021 would not pay tax on any post-lockdown profits this year until September 2022. So Nandy’s ‘now is not the time’ to increase corporation tax line is entirely spurious. Sunak’s March 3rd Budget statement effectively outflanked Labour on the left, and got CBI approval. He raised corporation tax significantly by 6% with a sweetener that ‘good’ businesses can cut that cost if they invest in more physical capital to help the promised recovery.
One wonders to whom Starmer’s front bench think they are appealing with such big business obeisance? Not the majority of voters – including Northern conservatives – who, when polled, continue to favour stricter corporate taxes even under Covid conditions. With Peter Mandelson apparently in his ear, is Starmer reverting to Blairite big business camaraderie? Possibly. The speech also vowed a “a new partnership with business… where business can have high expectations of Labour”. Which begs the question: with which sections of business would this partnership apply? Struggling small firms and the self-employed beset by high rents and unscrupulous corporate paymasters? Or, is it City hedge funds, property speculators and giant firms handling outsourced contracts? If the latter, the metaphorical coin seems firmly stuck with no pay-out for current and potential supporters. By contrast, even Sunak’s tax-but-spend sweepstake might seem a safer bet.